Question 1

When the level of unplanned inventory investment is equal to zero,the economy is
A)in disequilibrium.
B)in a recession.
C)in equilibrium.
D)overheating

Accepted Answer

When the level of unplanned inventory investment is equal to zero, it means that producers are producing the same amount of goods that consumers are willing to purchase. This is a state of equilibrium where demand and supply are in balance.

Question 2

Situation 20-1
Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9.
-Using the information in Situation 20-1,the equilibrium level of aggregate output is
A)$900
B)$8,000
C)$9,000
D)$10,000

Accepted Answer

To find the equilibrium level of aggregate output (Y), we can use the formula Y = C + I, where C is consumption and I is investment. 
Given autonomous consumption is $400, and the MPC (marginal propensity to consume) is 0.9. MPC is the change in consumption for every change in income. 
Thus, we can find the total consumption as: 
C = Autonomous consumption + MPC * Y 
C = $400 + 0.9Y

Now, we can substitute this expression for C in the equation Y = C + I: 
Y = ($400 + 0.9Y) + $500 
Y - 0.9Y = $900 
0.1Y = $900 
Y = $9,000

Therefore, the equilibrium level of aggregate output is $9,000.

Question 3

An increase in unplanned inventory investment for the entire economy equals the excess of
A)output over aggregate supply.
B)output over aggregate demand.
C)aggregate supply over output.
D)aggregate demand over output.

Accepted Answer

An increase in unplanned inventory investment occurs when firms produce more output than what was demanded by the buyers. This means that the output is exceeding the aggregate demand, making the correct choice B - output over aggregate demand.

Question 4

If actual output is less than equilibrium output,firms will ________ output to keep from ________ inventories.
A)increase;accumulating
B)increase;depleting
C)decrease;depleting
D)decrease;accumulating

Accepted Answer

The answer of If actual output is less than equilibrium...

Question 5

Situation 20-1
Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9.
-Using the information in Situation 20-1,if aggregate output is equal to $10,000,then unplanned inventory investment equals
A)-$1000
B)-$100
C)$0
D)$100

Accepted Answer

The formula for aggregate expenditure is:
AE = C + I
Where AE is aggregate expenditure, C is consumption, and I is planned investment.

Using the given information:
Autonomous consumption = $400
Planned investment = $500
MPC = 0.9

To find the equilibrium level of output, we can use the formula:
AE = Y
Where Y is aggregate output.

So, setting AE equal to Y:
C + I = Y
($400 + $500) = $900

Then we can use the MPC to find the equilibrium level of output:
Y = AE/(1-MPC)
Y = $900/(1-0.9)
Y = $9,000

Since aggregate output is actually $10,000, this means that there is unplanned inventory investment of:
Unplanned investment = actual output - equilibrium output
Unplanned investment = $10,000 - $9,000
Unplanned investment = $1,000

Therefore, the answer is D, unplanned inventory investment equals $100.

Question 6

Situation 20-1
Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9.
-Using the information in Situation 20-1,if aggregate output equals $8,000,the unplanned inventory investment equals
A)-$100
B)$0
C)$100
D)$500

Accepted Answer

The answer of Situation 20-1
Assume a closed economy with no...

Question 7

Situation 20-1
Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9.
-Using the information contained in Situation 20-1,if autonomous consumption increases by $100,then equilibrium aggregate output will change by
A)-$1,000.
B)-$100.
C)$100.
D)$1,000.

Accepted Answer

In a closed economy with no government, the multiplier is 1/(1-mpc). Given an mpc of 0.9, the multiplier is 1/(1-0.9) = 10. An increase in autonomous consumption by $100 leads to an increase in equilibrium aggregate output by $100 * 10 = $1,000.

Question 8

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain ________,firms will continue to lower production,and output will continue to fall.
A)below;negative
B)above;negative
C)below;positive
D)above;positive

Accepted Answer

The answer of In the Keynesian framework,as long as output...

Question 9

If aggregate demand falls short of current output,business firms will ________ production to ________ inventories.
A)cut;keep from accumulating
B)expand;keep from accumulating
C)cut;build up
D)expand;build up

Accepted Answer

If aggregate demand falls short of current output, firms will have excess inventory and will want to cut production to avoid accumulating even more inventory.

Question 10

If aggregated demand is less than actual output,unplanned inventory ________ will cause output to ________.
A)accumulation;rise
B)depletion;fall
C)depletion;rise
D)accumulation;fall

Accepted Answer

If aggregated demand is less than actual output, there will be unplanned inventory accumulation, which means there is a surplus of goods that are not being sold. To reduce this surplus, firms will decrease their output, causing it to fall. Therefore, option D is the correct answer.

Question 11

Situation 20-1
Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9.
-Using the information contained in Situation 20-1,if planned investment decreases by $100,the equilibrium aggregate output will change by
A)-$1,000.
B)$-100.
C)$100.
D)$1,000.

Accepted Answer

In a closed economy with no government, the multiplier is 1/(1-mpc), which in this case is 1/(1-0.9) = 10. A decrease in planned investment by $100 leads to a decrease in equilibrium aggregate output by 10 times that amount, which is $1,000.

Question 12

The Keynesian framework indicates that government can play an important role in determining aggregate output by
A)changing the level of government spending or taxes.
B)raising consumer confidence.
C)raising investor confidence.
D)changing the money supply and interest rates.

Accepted Answer

In the Keynesian framework, government spending and taxes can be used to influence aggregate demand and output. By increasing government spending or decreasing taxes, the government can stimulate consumer and business spending, leading to an increase in aggregate output. Alternatively, the government can decrease spending or increase taxes to reduce inflationary pressures and cool down an overheated economy.

Question 13

A tax cut initially
A)increases consumption expenditure by an amount greater than the tax cut.
B)increases consumption expenditure by an amount equal to the tax cut.
C)increases consumption expenditure by an amount that is less than the value of the tax cut.
D)has no effect on consumption expenditure.
E)reduces consumption expenditure by an amount that is less than the value of the tax cut.

Accepted Answer

A tax cut increases disposable income, leading to increased consumption. However, not all of the additional disposable income is spent; some is saved, making the increase in consumption less than the tax cut.

Question 14

Keynes believed that changes in autonomous spending were dominated by changes in
A)consumer expenditure.
B)autonomous consumer expenditure.
C)investment spending.
D)taxes.
E)none of the above.

Accepted Answer

Keynes believed that changes in autonomous spending, which are not influenced by changes in income, were dominated by changes in investment spending.

Question 15

In the simple Keynesian framework,declines in planned investment spending that produce high unemployment can be offset by raising
A)taxes.
B)government spending.
C)consumer confidence.
D)business confidence.

Accepted Answer

In the simple Keynesian framework, declines in planned investment spending can be offset by increasing government spending. This is because an increase in government spending leads to an increase in overall demand in the economy, which can help to create jobs and reduce unemployment. On the other hand, raising taxes would decrease disposable income and further reduce demand in the economy, exacerbating the unemployment problem. Consumer and business confidence can contribute to economic growth, but they do not directly offset declines in planned investment spending.

Question 16

If aggregate demand is less than the level of aggregate output,then ________ inventory investment will be ________.
A)planned;positive
B)actual;positive
C)actual;negative
D)planned;negative

Accepted Answer

When aggregate demand is less than the level of aggregate output, firms end up with more goods than they intended to sell, leading to an unplanned increase in inventories. This is referred to as actual inventory investment being positive.

Question 17

If aggregate demand equals output,
A)the economy is in a recession.
B)output will increase.
C)output will fall.
D)the economy is at its equilibrium level.

Accepted Answer

When aggregate demand equals output, the economy is at its equilibrium level, meaning that the level of output is consistent with what consumers, businesses, and governments want to spend. This is also known as the macroeconomic equilibrium, where there is no pressure for the economy to move in any one direction, neither towards expansion nor contraction.

Question 18

Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________,which are influenced by emotional waves of optimism and pessimism-factors he referred to as "animal spirits."
A)unplanned investment spending
B)actual investment spending
C)planned investment spending
D)autonomous consumer expenditures

Accepted Answer

The answer of Keynes believed that changes in autonomous spending...

Question 19

A decrease in unplanned inventory investment for the entire economy equals the excess of
A)output over aggregate supply.
B)output over aggregate demand.
C)aggregate supply over output.
D)aggregate demand over output.

Accepted Answer

The answer of A decrease in unplanned inventory investment for...

Question 20

If actual output is greater than equilibrium output,firms will ________ output to keep from ________ inventories.
A)increase;accumulating
B)increase;depleting
C)decrease;depleting
D)decrease;accumulating

Accepted Answer

When actual output exceeds equilibrium output, firms will decrease production to prevent the accumulation of unsold goods, aligning supply more closely with demand.

Quiz 27: The IS Curve

When the level of unplanned inventory investment is equal to zero,the economy is

Situation 20-1 Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9. -Using the information in Situation 20-1,the equilibrium level of aggregate output is

An increase in unplanned inventory investment for the entire economy equals the excess of

If actual output is less than equilibrium output,firms will output to keep from inventories.

Situation 20-1 Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9. -Using the information in Situation 20-1,if aggregate output is equal to $10,000,then unplanned inventory investment equals

Situation 20-1 Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9. -Using the information in Situation 20-1,if aggregate output equals $8,000,the unplanned inventory investment equals

In the Keynesian framework,as long as output is the equilibrium level,unplanned inventory investment will remain ,firms will continue to lower production,and output will continue to fall.

If aggregate demand falls short of current output,business firms will production to inventories.

If aggregated demand is less than actual output,unplanned inventory will cause output to .

Situation 20-1 Assume a closed economy with no government.Suppose that autonomous consumption equals $400,planned investment equals $500,and the mpc equals 0.9. -Using the information contained in Situation 20-1,if planned investment decreases by $100,the equilibrium aggregate output will change by

The Keynesian framework indicates that government can play an important role in determining aggregate output by

A tax cut initially

Keynes believed that changes in autonomous spending were dominated by changes in

In the simple Keynesian framework,declines in planned investment spending that produce high unemployment can be offset by raising

If aggregate demand is less than the level of aggregate output,then inventory investment will be .

If aggregate demand equals output,

Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________,which are influenced by emotional waves of optimism and pessimism-factors he referred to as "animal spirits."

A decrease in unplanned inventory investment for the entire economy equals the excess of

If actual output is greater than equilibrium output,firms will output to keep from inventories.